If you’ve been following the tech news, you’ve probably heard of the recent bankruptcy of Apple’s Sapphire glass partner – GTA Advanced. This was the quote from Apple following the announcement –
“We are focused on preserving jobs in Arizona following GT’s surprising decision and we will continue to work with state and local officials as we consider our next steps.”
The quotes in news headlines in the following morning used words like “unexpected,” “surprised,” etc., etc. But, as we did in our accounting class, one look at the SEC filing of the company at the end of June says otherwise –
The cash flow statement above shows that it had lost $165M cash over the quarter and had only $330M cash left. Now, this can’t be looked at in isolation of course. If they were due a massive repayment by a customer, then we would have to reconsider our conclusions. However, they only had $14M of accounts receivable due. They were just stuck in a very expensive business without the necessary scale. Given the rapid rate at which they were losing money, one could predict that they wouldn’t last longer than 2 quarters. And, they didn’t. You could also argue that they could have raised a large amount of money via external financing. But, as you might imagine, the list of financiers who would like to get in at this stage was likely going to be very small.
Hence, it is actually very surprising that Apple and the media were “surprised” at the bankruptcy.
My learning was that a working knowledge of accounting goes a long way. Irrespective of whether or not you foresee yourself in a role that involves finance, the ability to read financial statements can help a lot. For example, most large corporations provide stock and stock options to employees. How many of these employees actually read their own company’s financial statements?
Perhaps reading financial statements of organizations whose fate influences us (e.g. a key customer or supplier or a target employer) may help prevent a bad surprise or two. That could end up saving us a lot of mental and financial pain.
A Learning a Day 